At 10:00 am EST, yesterday, the Bank of Canada (BoC) left its target overnight rate unchanged at 0.5% — unchanged since July 2015, which in essence means no change to the interest rate on your Variable Rate Mortgages, Line of Credit, and/or Student Loans. However, despite deciding to sit on the sidelines, the bank did warn that the economy is seesawing up and down more than usual.
The BoC says the impact of the United Kingdom’s vote to leave the European Union could trim Canada’s gross domestic product by 0.1% over the next two and a half years.
The bank assessed the impact of the so-called Brexit vote for the first time as it released today a package of downgraded economic projections for Canada.
Here is an excerpt of the announcement and what they had to say about yesterday’s decision:
“Inflation in Canada is on track to return to 2% in 2017 as the complex adjustment underway in Canada’s economy proceeds. The fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty.
In this context, the forecast for the global economy has been marked down slightly from the Bank’s April Monetary Policy Report (MPR). Global GDP growth is projected to be 2.9% in 2016, 3.3% in 2017, and 3.5% in 2018. In particular, after a weak start to 2016, the US economy is showing signs of a rebound, with a healthy labour market and solid consumption growth. In the wake of Brexit, global markets have materially re-priced a number of asset classes. Financial conditions, already accommodative, have become even more so.
In Canada, the quarterly pattern of growth has been uneven. Real GDP grew by 2.4% in the first quarter but is estimated to have contracted by 1% in the second quarter, pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires. A pick-up to 3 1/2% is expected in the third quarter as oil production resumes and rebuilding begins in Fort McMurray. Consumer spending will also get a boost from the Canada Child Benefit”.
For the full rate announcement, please click here.
Based on this recent announcement, and the anticipation that the prime rate will still remain low for at least until the end of 2016 unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than most fixed term rates at this time.
Most lenders have also reduced the discounts on Variable Rate Mortgages which at one time was available as low as Prime minus 1%, most Variable Rate Mortgages today are priced around Prime minus 0.25 to 0.30% today. If having a fixed rate is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. The next scheduled date for announcing the overnight rate target is 7 September 2016.
